The Culprit Is A Continued Hangover From The Postrecession Party

A report from the Orlando Sentinel in Florida. “Orlando’s red-hot real estate market may be cooling off. The November real estate report from the Orlando Area Realtors Association shows sales fell 6.9 percent to during the month to 2,575 while the number of homes for sale grew to a 3.3-month supply, the biggest inventory since September 2017.”

“‘There has been a shock in how quickly interest rates have gone up,’ said Eric Soto, a real estate agent and co-owner of TC Orlando Homes based in Altamonte Springs.”

“Though there are more homes available, it’s still far from a buyers market, Soto said. ‘There may be more homes than there were a few months ago but only a few hundred,’ he said.”

“Zillow economist Jeff Tucker said home supply is up in many markets across the country. But he, too, wouldn’t call it a huge increase. ‘This is certainly not looking like an inventory spike,’ he said. ‘It’s just coming up from really low levels.'”

But three separate lawsuits against Defortuna and his Fortune International Group suggests there may be a dark side to the Argentine-born developer’s success story. The complainants contend Defortuna has engaged in a series of dirty tricks, cheating small investors and lenders in one of his signature projects, and blocking the sale of a small condo next to another project through subterfuge to thwart potential competition.”

“A third lawsuit is scheduled for trial in February, involves the Ritz-Carlton residential tower in Sunny Isles, which Defortuna developed in partnership with the Chateau Group and its principal, Manuel Grosskopf, who are also defendants in the suit.”

“The gist of the condo owners’ complaint: That the developers put up straw buyers to purchase five units in the Tropicana, enough to vote against and thus thwart a deal to sell the 48-unit condo to another developer for $115 million, said the association’s attorney, Glen Waldman.”

“Buying the units through fronts is legal. But Waldman said it was a dirty deal for the Tropicana’s mostly older and retired owners, who would have each cleared around $2 million for their units in a sale of the condo. ‘It was a smart, calculated way to protect their substantial investment, to the detriment of forty-some unit owners who stood to have enough money to retire and live on for the rest of their lives,’ Waldman said.”

From Crain’s New York Business. “Real estate experts are bracing for another year of uncertainty that at best will deliver anemic growth and at worst, more declines in prices and activity. The culprit is a continued hangover from the postrecession party.”

“Many real estate investors who saw the rapid appreciation of assets from 2013 to 2015 hoped prices would only keep rising. They didn’t. And now owners of condos, rental housing, and commercial and retail spaces are reluctant to drop asking prices, fearing a loss of equity or falling behind on loan payments.”

“Asking prices were inflated by around 10% in 2018, said Donna Olshan, head of Olshan Realty—meaning sellers had to make serious adjustments before striking a deal. The same will hold for next year as well. “

“‘The market moves in New York when the prices are right,’ Olshan said. ‘When it is overpriced, it’s like anything else: Inventory builds up, and you get a buyer’s market.'”

“And more supply is on its way. Thousands of apartments are planned for Long Island City alone. ‘Last year was clearly a reset in the real estate economy,’ said Jonathan Miller, head of appraisal firm Miller Samuel. ‘I think 2019 may shape up to be a little weaker.'”

‘Zillow economist Jeff Tucker said home supply is up in many markets across the country. But he, too, wouldn’t call it a huge increase. ‘This is certainly not looking like an inventory spike,’ he said. ‘It’s just coming up from really low levels’

Oh no, just a doubling in shacks for sale, month after month, in all the places you ass-hats said were in perpetual shortage. This is a good example of unnecessary boosterism from outfits like Zillow. We don’t need the ministry of propaganda stuff, Jeff.

Stocks ended last week on an ugly note, falling sharply Friday as the Dow Jones Industrial Average joined the S&P 500 and Nasdaq Composite in correction territory. But contrarians looking for signs of the sort of panic that typically mark stock-market bottoms were left disappointed, said one prominent chart watcher.

“With the SPX (SPX, -1.03%) at its lowest closing level since the autumn high, we remain concerned that sentiment and liquidation readings haven’t been more robust,” said Jeff deGraaf, chairman of Renaissance Macro Research, in a Monday note. “Despite Friday’s gnarly tape, the put/call ratio was a modest 1.04 with a TRIN reading of 1.27 (see chart below), hardly the readings associated with panic selling.”
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Most people understand placing blame better than understanding how things work. If the Fed is increasing rates as recession hits, the blame will easily fall on higher rates, not that the recession was created by lower rates in the first place.

If the Fed follows through on rate hike plans this week, will the carnage on Wall Street worsen? It seems likely: After years of pulling away the football just before Charlie Brown was about to kick it, Wall Street traders’ Pavlovian expectation is for the Fed to not execute preannounced rate hikes. Hence executing according to plans creates a negative expectations shock.

Powell, unlike Zimbabwe Ben and Yellen the Felon, seems to realize what’s at stake for the Fed’s shattered credibility after ten years of QE and “The Bernanke put” that encouraged and enabled all manner of reckless speculation. If Powell pulls Yellen’s patented “Lucy and the Football” stunt, the markets will read that as panic and the sell-off will only intensify, while precious metals – the ultimate antidote to the Fed’s debasement of the currency – will soar. Powell can’t afford to have that happen, so he has no choice but to push on with another .25% interest rate hike on Wednesday.

OT… Last night I talked to my California state employee friend again. Despite all the publicity to the contrary, he thinks CALPERS (his pension fund) is fully funded.

Actually, by their own numbers, last thing we heard they were only about 71% funded. Outside observers counter that this is based on unrealistic investment returns and other rosy assumptions, and the situation is actually considerably worse.

And of course, this is against a backdrop of asset values that were soaring until recently. As assets decline, the situation will become worse.

I’m not convinced that CA taxpayers will be willing or even able to make up the difference later. And they are the ultimate bag-holders, unless payouts to retirees are cut substantially.

“I believed, when I signed it, it was sustainable,” [former Governor] Davis said. “I knew it might take some tweaks here and there…but nobody on the planet Earth predicted we’d be going through what 2008 brought us.”

The assumption was lots of retiree would have died from obesity and smoking related illnesses, by now, but a curious thing happened the anti smoking campaigns worked so 40% smoked 40 years ago VS 13% today but nobody adjusted for this fact and eliminated early retirement say at 55 at full benefits. I’m surprised no one has shifted blame on getting healthy as the major cause for the pension shortfall.

The best part of “Indecent Proposal” are the fictional characters… Woody Harrelson as a talented architect (boundless optimism), Redford as the billionaire predator and Demi as the curvy real estate agent. A beautiful triangle of self-interest.

In communities where individuals spend a third or more of their income on rent, rates of homelessness are likely to accelerate, according to new research funded by real estate listings database Zillow.

The study validates what has long been a rule of thumb among real estate professionals—the idea that generally speaking, people shouldn’t spend more than a third of their income on rent. That idea is based on the assumption that wages and salaries go up at roughly the same rate as rents—but in many places, that is no longer the case.
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I meant to mention last week that the radio station I normally have the car radio set to suddenly starting heavily advertising the “we need a small team of motivated people ready to make big money flipping houses” ad. So I think that means that Folsom/El Dorado Hills just rolled over in the last month or so and everybody in the business knows there’s finally no money left to be made doing that. So now it’s time to fleece the sideline suckers.

I live in Las Vegas and have been driving around looking at all of the developments, especially in Summerlin and Lake Las Vegas. I can’t believe how much they are building everywhere. It reminds me of the early 2000s prior to the bubble bust. I have a strong feeling that they have once again overbuilt and we will once again see many of these “luxury properties” in the $500-900K range come down drastically over the next couple of years. I just can’t imagine that there are that many people who are willing to pay that amount in all of these planned communities popping up all over Las Vegas. I think it’s a bubble indeed and we will have a lot of people that default on their loans and there will likely be plenty of houses that will not sell over the course of the next couple plus years. Any thoughts out there?

Ben you should bomb some if these Bubble Humping Realtors youtube page comment section with data. I’ve been watching a lot of so-called market updates from licensed House Jockeys peddling fiction about how great the market is.

All while the RE market piles up with unsold inventory and the stock market implodes before our eyes.